On 1 January, 2020, the Dutch implementation of certain parts of the EU Anti-Tax Avoidance Directive 2 ((EU) 2017/952) ("ATAD2") came into effect for tax years starting on or after that date. These rules aim to combat tax avoidance that is the result of hybrid mismatches.
The following hybrid mismatches are targeted:
hybrid entities; hybrid financial instruments; hybrid permanent establishments; hybrid transfers; imported hybrid mismatches; and situations involving dual residency. If present, these hybrid mismatches are neutralized in case they result in the following:
a double deduction; and a deduction without inclusion. For both the double deduction and deductions without inclusions, a primary and a secondary rule will be implemented in the Dutch corporate income tax act. The primary rules generally deny the deduction of certain hybrid payments for Dutch corporate income tax purposes. The secondary rules generally include certain payments in the Dutch taxable base, whereby the participation exemption and the exemption for profits of permanent establishments are not applicable. The secondary rules are primarily foreseen for the application to situations with non-EU countries. Furthermore, certain additional documentation requirements have been created.
These rules apply in affiliated situations or where a so-called 'structured arrangement' is used. More stringent than the directive, the Dutch rules determine that affiliated means, among other things, an (in)direct share interest of 25% or more. A structured arrangement is an arrangement where non-affiliated parties conclude an arrangement:
which takes into account advantages resulting from a hybrid mismatched in its pricing; or which was deliberately implemented in such a way as to cause a hybrid mismatch. However, if the Dutch taxpayer was not aware and did not have to be aware that a structured arrangement was present, or it did not profit from the structured arrangement, the anti-hybrid rules do not apply. Below, we elaborate on imported hybrid mismatches and the documentation requirements.
2 Imported hybrid mismatches
The following situation is considered an imported hybrid mismatch:
A non-EU parent entity X grants a hybrid loan to its non-EU subsidiary Y, whereby the interest paid by entity Y is deductible, however the interest is not subject to tax or exempted in the hands of X because, for example, it is qualified as exempt participation dividend, because of...